SET Portfolio Update September 2011

| September 6, 2011

September 6, 2011

Dear Sector ETF Trader Reader,

It’s been one thing after another… after another… after another.  And finally, consumers and investors cracked.

Simply put, they’ve lost confidence in the economy, politicians, and the stock market.

Just look at the latest Conference Board’s Consumer Confidence Index.  It plummeted from 59.2 in July to 44.5 in August.  The index is now at its worst level since the depths of the credit crisis in April 2009.

What’s more, 42% of hedge fund managers are bearish.  That’s up from 27% in July and the highest reading in a year.

That’s shocking…

I know the economy’s been a little rocky but it’s nowhere near as bad as it was in 2009. Why then are consumers so glum?

I’ve got three reasons…

First off, it’s stubbornly high unemployment rate…

The lack of jobs casts a pall over consumers.  We’re still a long way away from recouping all of the jobs lost during the last recession.

Secondly, the weak housing market…

Falling home prices are hard on personal financial statements.  The farther housing prices slip, the poorer homeowners feel.

What’s more, weak housing and job markets take away mobility.  It’s hard to move across town or across country when you can’t find a job or sell your house!

That feeling of being stuck is a major drag on consumer confidence.

And last but not least, is lack of political leadership…

It’s crazy just how polarized the political process has become lately.  It’s like a thinly veiled brand of class warfare is breaking out.  And it’s happening all over the world.

Until political leaders show they’re willing to work together for the common good, we have little hope of seeing consumer confidence rise.

Here’s the thing…

Despite consumers gloomy outlook, we’re not destined for recession.

The truth is consumer confidence has very little to do with fast consumption grows.  In other words, consumers will continue buying stuff even if they’re in a bad mood.

However, their gloomy outlook will play havoc with financial markets.

Remember, the market isn’t moved by fundamentals alone.  It’s moved by how investors interpret the data.  And the fact is, as long as humans are involved in investing, then they will make irrational buy and sell decisions.

The good news is, buying stocks and ETFs when others are fearful can generate massive profits.  But you have to stay disciplined.  The market can and will move against us from time to time.

And that’s exactly what happened last month.  A number of our positions hit their stop loss.  That was our cue to sell.  Now it’s time to reload and go hunting for more great opportunities.

Our two picks from last month are a great way to get started.  The SPDR S&P Retail Fund (XRT) and PowerShares S&P SmallCap Energy Portfolio (PSCE) have the potential to be huge winners once investors and consumers regain their confidence.

Position Updates

. . . . SPDR S&P Retail Fund (XRT) – Buy up to $49

XRT is hanging tough in an ugly market.  And the truth is I’m expecting consumers to continue spending despite their lack of confidence.  So far that’s exactly what they’ve done.  And retailers are doing to great job of generating earnings growth despite weak economic growth.  Go ahead and buy XRT up to $49 if you haven’t already.

. . . . PowerShares S&P SmallCap Energy Portfolio (PSCE) – Buy up to $36

PSCE is following the price of oil.  And right now WTIC crude oil prices are hovering in the mid $80s per barrel.  That’s a far cry from the $90 to $100 many were expecting.  Demand goes up for small companies’ services when oil prices are high.  And it goes down when oil prices go down.  As a result, we’ve seen small cap energy stocks selloff as oil prices fall.  But don’t worry… Oil prices aren’t going to stay low for long.  I think the oil market is already pricing in a recession.  At this point, there’s much more upside potential than downside risk in small cap energy stocks.  Go ahead and buy PSCE up to $36.

. . . . Utilities Select Sector SPDR (XLU) – Buy up to $34

XLU is stable.  And that’s really all we’re looking for from our utilities ETF.  This defensive sector will kick in a solid 3.9% dividend yield while we wait for the markets to settle down. Go ahead and buy XLU up to $34.

. . . .  Market Vectors Gold Miners (GDX) – Hold

GDX is setup beautifully… Gold is at or near all time highs of more than $1,900.  And finally, gold miners are beginning to follow suit.  In fact, GDX just broke out to a new high above $65.  This level had been stiff resistance since December of last year.  Now that GDX has finally cleared this resistance level, it should be off to the races.  And after lagging gold prices for months, gold mining stocks are due for a period of outperformance. Continue holding GDX for bigger gains ahead.

. . . . iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ) – Hold

REZ was pummeled in the market correction.  But it’s come roaring back!  And for good reason… Residential REITs are making a killing right now.  Former homeowners who lost their home to foreclosure are flooding the ranks of renters nationwide.  The extra demand is pushing rents higher by leaps and bounds.  And don’t forget, low interest rates are keeping REITs borrowing costs down.  I think the best is yet to come for REZ.  Continue holding for bigger gains ahead.

. . . . Market Vectors Agribusiness (MOO) – Buy up to $53

MOO is bouncing back quickly from oversold conditions.  It’s fast approaching our $53 buy up to price.  Here’s the bottom line… Grain prices are high.  And farmers are going to make a lot of money this year.  In fact, the USDA is forecasting net farm income to rise $24.5 billion this year to $103.6 billion.  That’s a 31% increase from 2010!  By and large, this money is going to be spent on stuff Agribusiness companies make.  Clearly, MOO has the potential to skyrocket as farmers start spending their record profits.  Go ahead and buy MOO up to $53 if you haven’t already.

Action To Take

  • Move Market Vector Agribusiness (MOO) to buy up to $53


Category: SET Portfolio Updates

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